[Gautam Misra]

People have different tastes for investing. While some have the "safety first" attitude and invest in FDs/ insurance products, the younger generation have a more risk taking attitude and invest in Equities / Mutual Funds.

Here is a thread for Fixed Deposits which is very much a part of every financial portfolio.

KINDS OF FIXED DEPOSITS

1. Fixed Deposit in Banks

2. Fixed Deposits in Post Offices

3. Fixed Deposits floated by Companies

4. Debt Funds (Mutual Funds)

5. Flexi Accounts (Fixed Deposits linked to your Savings Bank Account)

PROS AND CONS OF FIXED DEPOSITS

While the greatest advantage of a fixed deposit is the safety and easy liquidity it offers it has its drawbacks. Parking all your money in a FD will not help you beat inflation and over the years one would negative returns. The best thing to do is to park your money in different asset classes like FDs, Equity and Gold in varied proportions.


1. Fixed Deposit in Banks
These are regulated by RBI and offer interest rates around 9 to 9.5% as on date. The rates would drop in the next few months. As on date banks like IDBI, Axis Bank and SBH offer slightly higher returns. This is a kind of a general statement and one would have to visit their respective websites for specifics.
One must also watch out for rules regarding penal interest on premature withdrawal.

Tax Component - The interest from these FDs is taxable.

2. Fixed Deposits in Post Offices
Post Offices offer products like NSC and MIS which offer returns of approximately 8.5%

Tax Component - The interest is taxable in MIS; NSC offers some kind of a tax relief to investors.

3. Fixed Deposits floated by Companies
These are not regulated by RBI and offer interest rates higher than bank deposits.
Tax Component - The interest from these FDs is taxable.

4. Debt Funds (Mutual Funds)
These are debt funds operated by MF companies. They offer more or less the same returns but carry a lower tax. No RBI control. Returns are not guaranteed.

5. Flexi Accounts (Fixed Deposits linked to your Savings Bank Account)
These are special savings bank accounts allowing automatic transfer of the money to a fixed deposit account. The rates are around 7% and the account kind of offers the best of both worlds. This may be highly recommended for individuals who have a very high amount in their SB accounts.

I hope this thread would be a platform for all BHPians to discuss their Fixed Deposit queries and share their views about the best interest rates available and the varied rules of different banks regarding fixed deposits.

[sgiitk]

Some additions;

1. Rates vary a lot from Bank to Bank. Many banks (incl large PSU) may not be geared towards crediting TDS to income tax. Today any TDS not on 26AS is as good as lost. Also, check the Senior Citizens advantage if you are 60+. Many private & foreign banks do not offer this.
2. The NSC 80C advantage is only till the DTC kicks in.
3. Not secured.Check the ratings. I will avoid anything not at least AA.
4. Long term capital gains is 10.3 (without indexation) or 20.6 with indexation. Also, if you choose Dividend Payout then it is 20.x%. Some of these advantages may vanish in the DTC.
5. I will rather go for short term deposits. These are a pain to manage.

Let me add
6. Tax Free Deposits with Infra Cos. These have a five year (being reduced to three year) lock-in and some investment ceilings. For higher tax brackets they are a boon. They normally carry an AA or higher rating.

[carboy]

Originally Posted by Gautam Misra

2. Fixed Deposits in Post Offices
Post Offices offer products like NSC and MIS which offer returns of approximately 8.5%

Tax Component - The interest is taxable in MIS; NSC offers some kind of a tax relief to investors.

The tax relief is not on the interest. In general, in India, there is only one FD product where interest is not taxable and that is PPF. In every other FD product, the interest is always taxable.

[VindyWheels]

Hi,

Nice topic for the current high interest times.

I get a 8.5% interest on my flexi S/B A/C with HDFC and its very convenient. You can withdraw money as you normally do and the FD gets broken accordingly for the required amount. For that amount you have withdrawn you get one percent less interest on a pro-rata basis (which comes to 7.5% in my case).

Shouldnt we add corporate bonds to the list. Since Infra bonds have already been included, why not consider bonds from reputed firms like Tata Cap, L&T etc with AA rating? Higher yield and better liquidity as you can sell in the open market without bearing a penalty (like in the case of an FD). You could also get some nice capital gain when the yileds start decreasing with lower interest rates. Since the interest rates are expected to decline this Finanacial Year, next few months could be ideal for investing in bonds.

Cheers

VW

[carboy]

Originally Posted by VindyWheels

Hi,

Nice topic for the current high interest times.

I get a 8.5% interest on my flexi S/B A/C with HDFC and its very convenient. You can withdraw money as you normally do and the FD gets broken accordingly for the required amount. For that amount you have withdrawn you get one percent less interest on a pro-rata basis (which comes to 7.5% in my case).

Shouldnt we add corporate bonds to the list. Since Infra bonds have already been included, why not consider bonds from reputed firms like Tata Cap, L&T etc with AA rating? Higher yield and better liquidity as you can sell in the open market without bearing a penalty (like in the case of an FD). You could also get some nice capital gain when the yileds start decreasing with lower interest rates. Since the interest rates are expected to decline this Finanacial Year, next few months could be ideal for investing in bonds.

One difference between Bank FDs and other debt instruments like Corporate Bonds, NBFI FDs and Corporate FDs is that Bank FDs are insured to the limit of 1 Lakh per person - i.e. even if the bank goes bankrupt, the insurance will pay upto 1 Lakh (including interest). The other debt instruments are not insured - i.e. if the company goes bust, you lose your money.

[mayankjha1806]

Another point to remember with Fixed Deposits is this is not a Inflation beating investment. If you look at FD interest rates they would in most probability give about a 1-2% above inflation (after deducting tax). So its best to convert cash which might be needed in cases of emergencies as a fixed deposits.

For investments one needs to look at equity markets and other debt instruments to get 4-5% above inflation after tax liability.

[carboy]

Originally Posted by mayankjha1806

Another point to remember with Fixed Deposits is this is not a Inflation beating investment. If you look at FD interest rates they would in most probability give about a 1-2% above inflation (after deducting tax).

No, it won't. Mostly, it gives 1-2% below inflation after deducting tax.

[Gautam Misra]

Originally Posted by sgiitk

6. Tax Free Deposits with Infra Cos. These have a five year (being reduced to three year) lock-in and some investment ceilings. For higher tax brackets they are a boon. They normally carry an AA or higher rating.

Thanks for your valuable inputs.

I am not sure about the position of tax free deposits (20,000/- max) after 1.4.2012. Wonder what will be the status after DTC.

Good that they have retained ELSS for this year which should the 1st choice with the current nifty/sensex levels.

[sdp1975]

Originally Posted by Gautam Misra

I am not sure about the position of tax free deposits (20,000/- max) after 1.4.2012. Wonder what will be the status after DTC.

Tax exemption on Infra bonds of upto 20,000/- are no more available in FY 2012-13.

[ghodlur]

Originally Posted by carboy

In every other FD product, the interest is always taxable.

Is this the case, I thought that interest till certain limit is tax exempted

Originally Posted by sdp1975

Tax exemption on Infra bonds of upto 20,000/- are no more available in FY 2012-13.

However the exemption for the Long term Infra bonds upto 20K is still available for this year too.

[karty_83]

Originally Posted by Gautam Misra

5. Flexi Accounts (Fixed Deposits linked to your Savings Bank Account)
These are special savings bank accounts allowing automatic transfer of the money to a fixed deposit account. The rates are around 7% and the account kind of offers the best of both worlds. This may be highly recommended for individuals who have a very high amount in their SB accounts.

Can we have more than one FD of different periods for the same savings account ?

[sgiitk]

Originally Posted by ghodlur

Is this the case, I thought that interest till certain limit is tax exempted


However the exemption for the Long term Infra bonds upto 20K is still available for this year too.

This year there is an exemption of Savings Interest up to Rs.10,000pa. This has been done since otherwise the option of salaried employees not to file returns was becoming infructuous. Technically, interest from 1/4 to 31/3 has to be accounted for. How would the assessee know the interest up to 31/3 in February?

I think there was some mention of allowing up to 60,000 into these bonds this year.

Originally Posted by karty_83

Can we have more than one FD of different periods for the same savings account ?

Yes, I myself have four FDs linked to the same savings account.

[ghodlur]

Originally Posted by sgiitk

I think there was some mention of allowing up to 60,000 into these bonds this year.

This got quashed straight away in the budget. In fact i read somewhere that the 20K exemption under 80CCF for long term infra bonds is also proposed to be withdrawn this year. So no more 20K exemption available. Can some experts confirm this please?

[sgiitk]

Originally Posted by ghodlur

This got quashed straight away in the budget. In fact i read somewhere that the 20K exemption under 80CCF for long term infra bonds is also proposed to be withdrawn this year. So no more 20K exemption available. Can some experts confirm this please?

You are correct. I just checked on the ET. It is now zilch.

[carboy]

Originally Posted by karty_83

Can we have more than one FD of different periods for the same savings account ?

Sure. You can also have more than 1 FD without having any savings account.

Originally Posted by ghodlur

Is this the case, I thought that interest till certain limit is tax exempted

I think that's only for savings acct interest, not Term Deposit Interest.